Q2 2023 Whitecap Resources Inc Earnings Call

Good morning, My name is Sylvie and I will be your conference operator today at this time I would like to welcome everyone to Whitecap resources Q2, 2020 results conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and if she would like to ask a question. During this time simply press Star then one on your telephone keypad and if you would like to withdraw from the question to you. Please press Star then number two and I would like to turn the conference over to Whitecap President.

And CEO Mr. Grant figure Heim. Please go ahead Sir.

Thank you Sylvia.

Good morning, everyone and thank you for joining US here today here with me are three members of our senior management team.

Senior Vice President and CFO , Tom <unk>, our senior Vice President Engineering, Darin, Dunlop and our senior Vice President business development and information technology team I'll recap before we get started today I would like to remind everybody that all statements made by the company. During this call are subject to the same forward looking disclaimer and advisory that we set forth.

News release that was.

We issued yesterday afternoon.

Our second quarter results emphasize the advantage that we have with our diversified asset base as we were able to partially mitigate the impact of the wildfires in north Central Alberta.

Outperformance of our later all weighted Saskatchewan in Central Alberta Block development.

Grams.

In the second quarter, we generated $197 million of free funds flow bring our total free funds flow to 390 minute $92 million in the first half of the year of which 53% or $208 million has been returned to shareholders through our base dividend and share repurchases.

During the second quarter, we spent $218 million.

Including $177 million of drilling and completions capital and $37 million facility expenditures.

We spent 43.

Gross 41, six net wells during the quarter 34 to $32 six net.

And if they are each division.

Breakup conditions subsided earlier than anticipated and our teams were able to get back in the field.

Yes.

Strong results across our East Division have continued and the team has done a tremendous job on both of our legacy assets as well as those acquired over the past two year period of time and our West Division, we commenced drilling nine wells the three well montney pad at <unk> and six wells on our seven well Duvernay program at coupons.

Hi.

Were spud in the second quarter since acquiring the <unk> assets 10 months ago, we've been able to reduce net debt by $800 million from $2 2 billion at the end of the third quarter of 2022 to now $1 $36 billion currently.

The balance sheet is in pristine shape with debt to EBITDA at six times and $1 $7 billion of unused.

That capacity.

The balance sheet has always been a priority for us has allowed us to not only effectively manage through the commodity price cycles, but all but to also capture value enhancing opportunities on behalf of our shareholders. We are close to reaching our one 3 billion.

Milestone, which due to the wildfires has deferred this to the second half of the year. This is an important milestone for us because it represents debt to EBITDA ratio of less than one times using $50 <unk> and a $3 per GJ April price assumption.

Which will then allow us to return 75% of our free funds flow back to shareholders inclusive of the targeted $73 per share <unk> 73 per share annual dividend.

Given the significant growth we have undertaken over the last couple of years, we have realigned our business units into two divisions eastern west to better streamline reporting processes and to drive operational excellence.

This division consists primarily of conventional assets, which have lower decline rates annual production growth rates of 1% to 2% and generally outsized free funds flow.

Capital expenditures.

Our West Division is primarily our unconventional resource plays which include the Montney the Duvernay and we'll have higher annual growth rate of 10% to 15% given the depth and quality of inventory in this division.

Our extensive portfolio.

60, 584 gross 565000.

675, net drilling locations allows us to continue to generate significant free funds flow well growing 3% to 8% production per share through organic drilling towards the 200000 Boe per day over the next five year period of time.

As reported yesterday results in our Montney of capital have continued to be strong with 82% of our wells drilled to date, achieving payout in less than one year or one year or less some even paying out less than five months the free funds flow potential and results to date from this asset that validates our initial technical.

<unk> of the <unk> assets. Furthermore, our teams continue to make significant strides in further enhancing their understanding of the montney assets and we believe the continual refinement of our development plans specific to individual areas and pads collections, such as targeted intervals within the Monty benches, well spacing completion designs.

<unk> operational efficiency will further increase the return characteristics and profitability of this expansive.

Set of assets moving forward.

Our West Division, we have now drilled and completed our first three well pad.

And have commenced drilling our second pad, a four well pad in the duvernay.

We look forward to having the first three wells tied into permanent facilities on production in late August while the four wall pad is expected to be on production in the fourth quarter. We were very encouraged by the execution of our drilling and completion operations to date as well as our initial production test rates.

Second quarter facilities capital included $15 million towards the expansion of our three of seven.

Three of 27 facility and about how the region as well as initial capital for material like battery.

This battery is expected to be completed in the second quarter of 2024, allowing us to <unk>.

<unk> developed one of the most attractive areas in the Montney that was acquired as part of the <unk> transaction last year.

Operations at Monster Lake are expected to begin later this year with production adds coinciding with the completion of the battery.

Our longer term development planning for the larger undeveloped montney acreage includes the expansion and increased utilization of current infrastructure as well as new infrastructure to support and maintain control or unconventional growth plans I will now pass.

It might go on to Tom to discuss our financial results.

Thanks, Greg second quarter funds flow of $450 million or 68 cents per diluted share equates to a final flow netback of approximately $31 per Boe.

Strong liquids production improved differentials on our salary medium crudes sold in Saskatchewan and onetime TCA adjustments all contributed positively towards that back in the quarter.

Production shut ins due to the Alberta wildfires resulted in increased per unit operating costs to over $15 per Boe in the second quarter.

Going forward, we forecast operating costs will decrease to approximately $13 per Boe.

As we increased production in the back half of the year.

As grant mentioned the balance sheet is in excellent shape with a debt to EBITDA ratio of only <unk> six times and $1 7 billion of Unutilized capacity, our balance sheet will continue to strengthen as we forecast net debt passing the $1 3 billion target and reaching approximately 1.2 billion by yearend based on current strip prices.

At this point, we will have decreased net debt by 1 billion since the closing of the X. The old transaction and returned over 500 million to shareholders through base dividends plus share repurchases.

Our 2023 capital spending guidance remains unchanged at $900 million to $950 million and we've adjusted our annual production guidance to 157250 9000 boe's to reflect the impact of the Alberta wildfires oil and liquids production has been stronger than forecast it through the <unk>.

The first six months of the year and in combination with some of the program changes. We've made earlier this year, we're now expecting our annual liquids weighting to increase to 65% from 64% previously.

I'll now pass back to grant for his closing remarks.

Mr. <unk>, we cannot hear you.

Thanks, Tom.

Excited about the opportunity set that is ahead of us and look forward to capitalizing these assets to extract as much value from the assets as we can our teams continue to refine their understanding of each play.

We are in and we have an extensive inventory depth that we can.

Can efficiently develop and hit our growth targets, while continuing to improving profitability and returns to shareholders with our healthy inventory depth strong balance sheet low decline high netback asset base Whitecap is inhibition of strengthened as we advance our business through the remainder of 2023 into 2024 and beyond.

The outlook for Canadian oil and gas is positive as has long awaited export projects begin to come online and high quality response, we produce Canadian energy can be utilized in markets around the world like cap has and will continue to be significant supply source of conventional oil as of recently, our largest supplier of natural gas to end users.

Across North America.

We're also advancing our carbon capture utilization and storage hubs across Alberta, and Saskatchewan and as our subsurface expertise and experience with carbon sequestration is highly sought after to assist these large emitters and are deeply de carbonization efforts. We have multiple projects that are scheduled to begin sequestration in late 2024.

And while there is still a significant amount of work to be done with all the stakeholders stakeholders involved we are confident that the solutions will be found to making significant advancements I'm moving Canadian energy into a lower carbon economy.

With that I will now turn the call over to the operator Sylvia for any questions. Thank you.

You, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone cellphone you will then hear a sweeter.

Acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if using a speaker phone, we will need to lift the handset before.

Before pressing any keys. Please go ahead and press Star one now if you have any questions.

And the first question will be from Jeremy Mccrea at Raymond James. Please go ahead.

Yes.

I want to talk about some of your operations.

Just based on some of the test results that you've been getting in the Montney. Some of the early looks at the Duvernay are you guys looking at shifting any of your Capex within your budget here. Maybe later this year or what your kind of somewhat thinking here for 2024.

And just is there any new technology that you are seeing from any maybe even some of your peers that can improve any of these plays here.

Yeah, Hey, Jeremy it's Darren here.

No it was the.

The results were seeing are within our expectations of what we thought our our budget allocation capital allocation is going to remain pretty similar and adds for groundbreaking technology changes not really you know the montney and duvernay for that matter are both fairly well up the learning.

Kurt So there as you know.

Only modifications and optimization is being made are very specific on a pad by pad well by well reservoir by reservoir basis. So.

Nothing Earth shattering from that perspective.

Just to follow onto that Jeremy I think that's in the Montney.

Where it is.

Gary referenced quite far up the learning curve, we've drilled a total of 30, new wells to date, including our our car and Cockloft areas.

Areas through our acquisitions, our joint venture with Hammerhead.

The acquisition of timber rock as well as the <unk> transaction. So we're quite far up the learning curve as far as new using the newest technologies that are available to us.

As Darin said that getting the results that we're having are as expected and maybe a little bit better than expected what was new to us I think is the duvernay and we're seeing some very good test results at this particular time and look forward to advancing those projects and bringing those on stream for a full time.

And then be able to talk to it perhaps.

At the end of the third quarter.

Okay.

Maybe kind of just shifting gears here a bit.

Now that you're kind of close to your targeted debt levels.

Any more thoughts on the A&D market, what it's looking like if youre looking to potentially sell.

Some additional noncore assets or is there anything that.

You want to maybe add to the portfolio now that your balance sheets.

But much stronger shape.

The cash acquisition.

Yes, just on the.

The M&A market and Ive got David Barber Cat sitting here. He is anxious to get going again for sure with his team, but now what we're looking at is we think that as I had referenced earlier I think on the last call that when we did the cleansing of the assets that we werent going to capitalize that we did in the first quarter of the year, bringing.

Bringing in a $400 million.

Cash to our balance sheet that was helpful to us and I think we're very comfortable with the the while we are very comfortable with the asset suite that we have now.

One of the areas, we may bring on assets that that we're not looking to drill over the next seven to 10 year period of time, we may look to bring in third party capital.

And to some of the areas because we have such an expansive opportunity set in front of us so.

That's an area that we'll look at but we do have to be cautious.

They don't try to ensure that if we're truly not going to capitalize on that.

Maybe we can get to others too, but that will be something we'll look at as we move into the balance of this year and into 'twenty for them as far as specific acquisitions, we're not a.

We said that this was a year, we're going to be focused on our operations and we're committed to that.

Perfect guys. Thank you very much.

Jeremy.

Next question will be from Josh.

Haywood Securities. Please go ahead.

Hey, guys strong quarter and thanks for taking my questions.

My first question is on the Montney Cockwell.

Hoping if you could add some color on what specific opportunities youre seeing to enhance capital efficiencies in the region.

Yes, it's Darren here can you can you repeat that I missed the middle part.

Yeah I was wondering if you could add some color on what specific opportunities youre seeing to enhance capital efficiencies in the region.

Yeah. It was primarily just continue T.

To exceed what our expectations are with regards to you know proper placement fit for purpose frac designs, depending on what the reservoir characterization is.

Flowing through our controlled facilities to optimize our cash flow in the short term.

You know like nothing like I said in the last question nothing groundbreaking just continual improvement.

Piece by piece.

Okay.

My second question is on the Duvernay.

How do you think about optimizing the asset going forward either on the drilling or completion side now that you've taken over the asset and what would you or.

Or what would increase the confidence to accelerate the development of the play in 2024.

Yes first of all just.

We've walked into this cautiously the duvernay play when we acquired it we had not been drilling up in his place we wanted to do.

More geoscience and engineering work on that before we went in and we're very.

Pleased with what we've seen in our first three well pad not just from the drilling but from a completion.

And the test results that we're having at this particular time.

And that has allowed us to shift our capital around and drilling the four well pad that we're on right now around the third well of the three.

A four well pad.

Drilling that out that we talked about earlier about bringing our arm by by the end of the year the second pad. So.

We're tiptoeing into the play I would expect that this year, we'll have drilled seven wells, but moving forward will set our budget up.

Depending on results as to what we get here.

Darren and the engineering team together with our Geoscientists and operations guys will put together a budget for 'twenty.

'twenty four 'twenty five that will include.

Probably advancing these projects at a little bit more where we were not capacity.

Facility capacity constrained there we own the 15 to 17.

Plant and it is only utilize to the tune of about 65% today. So we have capacity to move our products through that.

Okay. Thanks, that's all for me.

Okay. Thank you.

A reminder to please press star one if you do have any questions next will be Travis wood at National Bank. Please go ahead.

Yes. Thanks.

Okay.

And in terms of the facility that came with X T O. So.

It's about 65% full.

Room to.

To help on the cost side.

I expect.

But maybe on cash catch up and running are you guys seen any wiggle room to improve costs, both on transport on the liquid side now or and.

And on the processing side with some.

Some incremental space left at 57.

Yes.

And I think your two part question is first of all the 15 to 17 facility.

Obviously, we'll continue with more throughput will drive down costs on a per unit basis. So that will be an area that we'll look to advance and as far as the kaps pipeline and getting tied into to that.

That will take place in the first quarter as well so first quarter, leading into the second quarter, So which we do have capacity we have.

<unk> on that.

And the end of the <unk> system. So I.

I think we're in very good shape your.

Increasing production driving down costs I think it's.

And these bigger what I'll call more risk unconventional resource plays both in the in the Duvernay and the Montney.

Okay, that's perfect so kind of leveraging off.

The pipeline in.

And in Q1 of next year.

That's correct, Yeah, that's right okay.

Thanks, Greg.

Okay.

Thank you and at this time Mr. <unk>.

It appears that we have no other questions. Sir Please proceed.

Well that was quick we can keep going here for quite a while but anyway.

Thanks, Sally and once again I want to thank each of you for taking the time and interest and listened to our call. Today. We are excited to advance our company forward with a strong total returns to shareholders and we look forward to updating you on the progress from an operational perspective over the next several months all the best have a good day enjoy developed Alan to your summer.

Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

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